ETF Investors Are Overwhelmingly Young. Can Issuers Expand Their Reach?

ETFs may have conquered Wall Street, but the industry still has work to do courting older investors.

A new study from London-based Investment Association on ETF adoption in the UK highlights a trend both here and abroad that ETF adoption is skewing younger. Nearly half of UK investors started investing in ETFs within the past five years, and two in five ETF investors are younger than 34. In the US, it’s estimated that three in four people aged 18 to 25 now hold ETFs in their retirement accounts compared to just 60% of Baby Boomers, according to a Nasdaq survey. Older investors, some of whom may have started investing before the rise of ETFs, could prove an untapped market for issuers.

“There’s work to do in those particular segments that are not well represented,” said Investment Association market insight director Miranda Seath. “It’s really about basic education: what ETFs are, how they can be used, what might some of the advantages be — but also educating people on risks so that they get a good picture.”

ETF Pluribus Unum

The generational gap in ETF uptake may come down to a lack of awareness. Nearly half of all the trades that advisors made for Gen Zers last year were in the form of ETFs, according to the Nasdaq data. “When we do see differences, it’s often in the demographic data about different generations. Gen Z versus Baby Boomers can have some quite different views,” Seath said. “As younger people use [ETFs] and become more used to using them, as data shows… The next generation of investors is going to be really critical.”

The Investment Association data also found that:

• 49% of UK retail investors had little to no knowledge of ETFs.
• 55% of UK investors getting financial advice have either never been recommended an ETF or weren’t sure.

City Life. ETF buyers are also more common in cities, where economic opportunities and money tend to be concentrated, according to the report. For example, a quarter of the ETF investors surveyed lived in London. Investors’ goals, however, cross geographic and demographic lines, Seath said. “Pretty much universally… key goals are things like saving and investing for retirement, those really important life milestones,” she said. “This is not just a product for people who are comfortable with trading and like to trade.”